Get ready to pay more to keep the lights on . . .

In the up-is-down world of today's electricity markets, get ready to begin paying power plants not to turn on.

The grid operator for the region encompassing all or parts of 13 states, including the Chicago area, has proposed far-reaching changes to how wholesale electricity prices are set. The new rules unveiled Nov. 15 by PJM Interconnection are aimed at pushing up power prices to help financially pressured base-load plants—mainly coal-fired and nuclear—that are designed to run most of the time regardless of demand.

Lobbied by Chicago-based nuclear giant Exelon and other power generators, PJM wants to scrap the long-established standard that the most cost-efficient power plants set the price consumers and businesses pay to keep the lights on at any given hour.

For many years, plants powered by natural gas have determined marginal energy prices, thanks to the low cost of the fuel. That can pinch nuclear and coal-fired facilities, which, unlike many gas plants, must run most of the time, even when their capacity isn't necessarily needed.

So now PJM proposes to set a new formula that would have more expensive nukes and coal burners set the marginal price more often. The proposal is subject to approval by the Federal Energy Regulatory Commission. PJM hopes to have a formal policy submitted to FERC by fall 2018, after soliciting comments from generators, states, municipalities and consumer groups.

One key challenge with the new system is what to do about the cheaper natural gas plants that are price-competitive but whose ​ output won't be needed. In those cases, PJM wants them not to turn on but proposes that consumers pay them anyway.

In a market where natural gas plants are being built all the time despite low energy prices, it's a recipe for . . . even more gas plants. Which presumably will mean even more plants in line to get paid not to produce. "If (PJM) were to raise prices, there's a risk that the level of supply relative to demand will be even greater," says Paul Patterson, a utility analyst at Glenrock Associates in New York.

Close to home, for example, a massive natural gas plant with the capacity of a large nuclear reactor is slated to begin construction next year in Grundy County despite a persistent power glut in the region. If PJM's new pricing system goes into effect, will Chicagoans pay Silver Springs, Md.-based Competitive Power Ventures, the plant's developer, not to operate?

A PJM spokeswoman says the initiative is aimed at ensuring that less flexible plants like nukes and coal are paid enough to be available all the time. Paying other types of plants not to produce "is how we would compensate for the lost opportunity cost," she says. Asked if this will incentivize the construction of more unneeded gas plants, she says, "PJM cannot prevent anyone from building a plant, whether it's nuclear, gas, coal or hydro. That's not our role."

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One thing all agree on: The new policy would raise electricity prices for all households and businesses.

Exelon, which would benefit significantly from the change, agrees with analyst projections of increases between $2 and $5 per megawatt-hour. At the midpoint of that range, Commonwealth Edison customers in Chicago would see their current power prices hiked 5 percent. For Exelon, each dollar per megawatt-hour means about $135 million more in annual revenue across its fleet of plants, the company told analysts. So such an increase could amount to a $472 million boost or even as much as $675 million.

That's on top of the $235 million annually Exelon will begin receiving next year courtesy of subsidies Illinoisans are paying via their electric bills to keep two financially challenged nuclear plants from closing under a 2016 state law.

EXELON'S STANCE

Unsurprisingly, Exelon wholeheartedly endorses PJM's action. Echoing the Department of Energy under President Donald Trump, which is pushing FERC to re-regulate coal-fired plants and nukes in parts of the country where they're subject to market forces, Exelon says preserving at-risk nukes is crucial to keeping the grid "resilient." Over-reliance on natural gas could plunge large areas into darkness if a gas pipeline were to suddenly lose service due to weather or an attack.

The problem is acute enough, the company says in a Nov. 7 filing with FERC, that Exelon would be open to re-regulating nukes if a "market-based solution is unavailable"—remarkable in light of its oft-repeated dedication to open markets. "The stakes are too high to reject a cost-based alternative simply on account of loyalty to a pro-market ideology," the company writes.

In a statement, an Exelon spokesman says: "We are not seeking to re-regulate the nuclear fleet. If reforms are needed to protect the American power grid, then FERC should use all of the tools at its disposal to prevent a failure of the system. While Exelon and others prefer market-based solutions, our policy preferences must give way to protecting our customers."

PJM's approach has garnered sharp criticism from an unlikely source—the grid operator's independent market monitor, whose role is to ensure markets are competitive and fair. "Proponents have not demonstrated that the technologies in question actually need subsidies or higher revenues from market design changes," Joseph Bowring writes in a Nov. 9 report. He says most nukes in PJM recover their costs under today's market conditions, an assertion Exelon sharply disputes.

"The fact that some plants are uneconomic does not call into question the fundamentals of PJM markets," Bowring writes. "Many generation plants have retired in PJM since the introduction of markets and many generating plants have been built since the introduction of markets."